05/31/2013

Promissory Notes and Medicaid Qualification

In
order to be eligible for Medicaid benefits, a nursing home resident may not
have more than $2,000 in assets (in most states). If used properly, a
promissory note can help a nursing home resident reach the appropriate level of
assets.

Medicaid can mean a world of
difference when it comes to ensuring proper care for your elderly loved ones, especially
when they are running out of assets. When their major remaining “countable”
asset is an illiquid asset, what are their options short of depleting it or
risking a fraudulent transfer?

As you may well know, Medicaid is
the source of nursing home care for many indigent Americans. Still others are
caught in a netherworld of being above the minimum asset threshold for
qualification, but having too few assets to realistically pay for their care. It’s a sticky situation.

The focus of the article is a
recent federal case out of Oklahoma, but the basics apply generally.
Essentially, an elderly woman transferred her farm and accounts to her son in
exchange for a promissory note. A note is a legally binding contract to repay as
fixed sum and so it clears the Medicaid hurdle in question.

In this instance, this approach
indeed saved the farm and the elderly woman received her nursing home care
through Medicaid. Nevertheless, a promissory note is not a full-proof plan. For
one, many states reject the idea and refuse to recognize promissory notes. For
another, the plan can only work because promissory notes are legally binding
contracts, and so if the note cannot be repaid there are potential tax burdens
that may be triggered.

The article also points out
there are several tools, like the promissory note, that can prove useful when
seeking legitimate Medicaid qualification. This especially is true if you plan
well in advance.

Danger! The Medicaid
qualification rules vary from state to state. This is not a self-help project,
as you may find yourself (and your elderly loved one) in a tricky financial and
legal purgatory if you make any missteps.